It’s been said by people much smarter than me that “for every action there is an equal and opposite reaction”.
I bubble-thought that for a moment or two, and I suggest we switch that around a bit to say that, “for every inaction there is a reaction”. Inaction is a result of not reacting to something that is wrong. I call that dormancy.
Sort of like ignoring a sleeping giant.
Sleeping is the apt description for the energy sector today, which is under assault from both the demand and supply sides of the teeter totter. With less than two weeks until the start of the driving season, gasoline demand is down 39% while jet fuel is at negative 67%. This, while on the supply side combined petroleum product inventories including crude are up 10%.
These numbers are astonishing and unheard of for this time of year.
But this has been a wake-up call for one of our own sleeping giants, Irving Oil, the owner and operator of the 320,000-bpd refinery in Saint John. N.B., and the largest in the country.
In what appears to be, at first squint, an offering of an altruistic lifeline to oilsands producers in the west, Irving has requested permission from our Ottawanic leadership to use foreign flagged tankers to ship western crude from B.C. to Saint John via the Panama Canal, a distance of a staggering 11,770 km away.
This is an example of action or the awakening of one giant in reaction to the inaction of another — the Canadian government and its collection of provincial siblings.
Irving has made its decision, I believe, based on the observation that through their economic crystal ball the price of Western Canadian Select (WCS) will remain well below the costs of both West Texas Intermediate (WTI) and Brent. This is especially attractive since their refinery uses the higher priced and globally benchmarked Brent as their feedstock not WTI. On the totem pole of crude oil pricing WCS sits at ground level.
Continuing with the same metaphor, it seems that Irving has decided that the pipeline game is not being played on level ground and the rules of the game are constantly changing.
Shipping by actual ship through the wide-open Panama Canal avoids the environmental confines and hazards prevalent in the political ponds in this country.
When the tankers begin to unload low-ball priced WCS in Saint John, this will not be lost on Suncor and Valero that will be observing all of this with a combined capacity in Quebec of 420,000 bpd. But to bring in WCS by tanker would mean shipping through the Gulf of St. Lawrence.
But hold on! Quebec won’t allow that Western Canadian crude that originates from the oilsands to cross the Quebec border despite the fact that Saudi crude merrily unloads in Montreal without any hassles.
If Quebec won’t allow WCS to unload in Quebec City or Montreal, then the financial futures of refineries in that province will be in serious doubt.
This is not the time to press the political alarm to snooze because Irving just may have woken us all up.
Good morning Ottawa!
~ The Grouch
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